Please help only Part 2. Alternative Capital Investments The investment committe

Question

Please help only Part 2. Alternative Capital Investments The investment committee of Shield Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $1,239,000. The estimated net cash flows from each project are as follows:

2. For each project, compute the net present value, assuming that the office expansion is adjusted to a four-year life for purposes of analysis. Use the present value of $1 table above.

Please help!

Explanation / Answer

Net Present Value is calculated using 12% discounted rate.

-640,184

Present value of cash inflow is calculated as under:

Office Expansion Upgrade to Computer Servers Initial Investment 1,239,000 1,239,000 Year 1 -6 Net Cash flow 346,000 457,000 Discounted rate 12% 12% PV of Cash outflow 1,239,000 1,239,000 Years taken for purpose of analysis 4 6 PV of Cash inflow 1,051,148 1,879,184 Net present Value 187,852

-640,184

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